Midland Case Calculations

MIDLAND ENERGY RESOURCES Income Statement

Project: MIDLAND ENERGY RESOURCES

Analysis: Income Statement

Draft: N

Footer: Harvard Business Publishing

Harvard Business Publishing

MIDLAND ENERGY RESOURCES Income Statement

Operating Results

Operating Results: 2004 2005 2006

Operating Revenues 201,425 249,246 248,518

Plus: Other Income 1,239 2,817 3,524

Total Revenue & Other Income 202,664 252,062 252,042

Less: Crude Oil & Product Purchases 94,672 125,949 124,131

Less: Production & Manufacturing 15,793 18,237 20,079

Less: Selling, General & Administrative 9,417 9,793 9,706

Less: Depreciation & Depletion 6,642 6,972 7,763

Less: Exploration Expense 747 656 803

Less: Sales Based Taxes 18,539 20,905 20,659

Less: Other Taxes & Duties 27,849 28,257 26,658

Operating Income 29,005 41,294 42,243

Less: Interest Expense 10,568 8,028 11,081

Less: Other Non-Operating Expenses 528 543 715

Income Before Taxes 17,910 32,723 30,447

Less: Taxes 7,414 12,830 11,747 0.41 0.39 0.39

Net Income 10,496 19,893 18,701

40%


MIDLAND ENERGY RESOURCES Balance Sheet


Analysis: Balance Sheet

Draft: N



MIDLAND ENERGY RESOURCES Balance Sheet

Assets: 2005 2006

Cash & Cash equivalents 16,707 19,206

Restricted Cash 3,131 3,131

Notes Receivable 18,689 19,681

Inventory 6,338 7,286

Prepaid Expenses 2,218 2,226

Total Current Assets 47,083 51,528

Investments & Advances 30,140 34,205

Net Property, Plant & Equipment 156,630 167,350

Other Assets 10,818 9,294

Total Assets 244,671 262,378

Liabilities & Owners' Equity:

Accounts Payable & Accrued Liabilities 24,562 26,576

Current Portion of Long Term Debt 26,534 20,767

Taxes Payable 5,723 5,462

Total Current Liabilities 56,819 52,805

Long Term Debt 82,414 81,078

Post Retirement Benefit Obligations 6,950 9,473 1

Accrued Liabilities 4,375 4,839

Deferred Taxes 14,197 14,179

Other Long Term Liabilities 2,423 2,725

Total Shareholders' Equity 77,493 97,280

Total Liabilities & Owners' Equity 244,671 262,378


Balance Sheet


Balance Sheet


MIDLAND ENERGY RESOURCES Business Segments


Analysis: Business Segments

Draft: N



MIDLAND ENERGY RESOURCES Business Segments

Exploration & Production: 2004 2005 2006

Operating Revenue 15,931 20,870 22,357

After-Tax Earnings 6,781 13,349 12,556

Capital Expenditures 6,000 7,180 7,940

Depreciation 4,444 4,790 5,525

Total Assets 76,866 125,042 140,100 0.534

0.358

0.108

Refining & Marketing: 2004 2005 2006



Capital Expenditures 1,455 1,550 1,683

Depreciation 1,620 1,591 1,596

Total Assets 60,688 91,629 93,829 0.358 93,829

Petrochemicals: 2004 2005 2006



262,378

Capital Expenditures 305 330 436

Depreciation 578 591 642

Total Assets 19,943 28,000 28,450 0.108


MIDLAND ENERGY RESOURCES Stock & Dividend Data


Analysis: Stock & Dividend Data

Draft: N



MIDLAND ENERGY RESOURCES Stock & Dividend Data

Stock Prices: 2001 2002 2003 2004 2005 2006

Fourth Quarter $27.16 $31.29 $32.59 $34.37 $38.32 $44.11

Third Quarter $27.90 $30.41 $29.42 $35.78 $40.29 $39.75

Second Quarter $28.33 $27.80 $32.45 $36.98 $37.52 $46.32

First Quarter $24.13 $26.85 $31.57 $31.28 $34.58 $38.81

Dividends Per Share:

Fourth Quarter $0.28 $0.29 $0.30 $0.31 $0.34 $0.36

Third Quarter $0.28 $0.29 $0.29 $0.31 $0.34 $0.36

Second Quarter $0.28 $0.29 $0.29 $0.31 $0.34 $0.36

First Quarter $0.28 $0.29 $0.29 $0.31 $0.34 $0.36

Annual Dividend $1.11 $1.14 $1.17 $1.24 $1.35 $1.46

Selected Financial Data:

Net Income 15,303 11,448 11,848 10,496 19,893 18,701

Shares Outstanding 2,049 2,025 2,035 2,055 2,945 2,951

EPS 7.47 5.65 5.82 5.11 6.75 6.34

Payout Ratio 14.8% 20.2% 19.9% 24.2% 20.0% 23.0%

DPS 1.11 1.14 1.16 1.24 1.35 1.46

Note: Results have not been adjusted for a divestiture at the end of 2001 and an acquisition at the beginning of 2005.


MIDLAND ENERGY RESOURCES Comparable Companies


Analysis: Comparable Companies

Draft: N



MIDLAND ENERGY RESOURCES Comparable Companies

Equity Net Equity LTM LTM Unlevered D/E

Exploration & Production: Market Value Debt D/E Beta Revenue Earnings beta

Jackson Energy, Inc. 57,931 6,480 11.2% 0.89 18,512 4,981 0.27 0.834

Wide Palin Petroleum 46,089 39,375 85.4% 1.21 17,827 8,495 0.48 0.800

Corsicana Energy Corp. 42,263 6,442 15.2% 1.11 14,505 4,467 0.31 1.017

Worthington Petroleum 27,591 13,098 47.5% 1.39 12,820 3,506 0.27 1.082

Average 39.8% 1.15

0.933

Refining & Marketing:

Bexar Energy, Inc. 60,356 6,200 10.3% 1.70 160,708 9,560 1.601

Kirk Corp. 15,567 3,017 19.4% 0.94 67,751 1,713 0.842

White Point Energy 9,204 1,925 20.9% 1.78 31,682 1,402 1.582

Petrarch Fuel Services 2,460 (296) -12.0% 0.24 18,874 112 0.259

Arkana Petroleum Corp. 18,363 5,931 32.3% 1.25 49,117 3,353 1.047

Beaumont Energy, Inc. 32,662 6,743 20.6% 1.04 59,989 1,467 0.925

Dameron Fuel Services 48,796 24,525 50.3% 1.42 58,750 4,646 1.091

Average 20.3% 1.20

1.05

Midland Energy Resources 134,114 79,508 59.3% 1.25 251,003 18,888


Comparable Companies


Comparable Companies


Table 1

Credit Debt/ Spread to

Business Segment: Rating Value Treasury D/V E/V D/E

Consolidated A+ 42.2% 1.62% 42.2% 57.8% 73.01%

Exploration & Production A+ 46.0% 1.60% 46.0% 54.0% 85.19%

Refining & Marketing BBB 31.0% 1.80% 31.0% 69.0% 44.93%

Petrochemicals AA- 40.0% 1.35% 40.0% 60.0% 66.67%

Note: Debt/Value is based on market values.

Table 2

Maturity: Rate:

1-Year 4.54%

10-Year 4.66%

30-Year 4.98%

In 2006 Midland used an equity market risk premium of 5.0%,

EMRP 6.00%

Values derived from Table 1 in 'others' sheet

Rate (Rd)

Beta

(Asset)

Target

Debt to

Equity

ratio

New Beta

(Equity)

Midland (consolidated)6.28% 0.921 0.73 1.32

Inputs E&P 6.26% 0.933 0.85 1.41

Tax rate 40% Average value taken R&M 6.46% 1.050 0.45 1.33

10 year treasury bond 4.66% 10 year treasury bond taken as Rf Petro 6.01% 0.436 0.67 0.61

Spread to treasury

Consolidated 1.62%

E&P 1.60%

R&M 1.80% Beta (firm) = Beta (Asset) [ 1+(D/E) (1-T)]

Petro chemicals 1.35%

Beta (Equity) 1.25 times Qn1:

Risk premium for market 5% To estimate the asset appraisals, mergers & acquisistion proposal,stock repurchases

Equity 134114 Estimates based on individual divisions performance is better

Debt 79508

Qn2:

Midland's cost of capital 8.11%

Qn3:

Individual division's performance is better for estimates.

Qn4:

Exploration & production Coc 8.05%

Refining & Manufacturing 9.01%

Qn5:

Based on the share of assets & using the computed betas

Petrochemicals Division CoC 6.07%

Values derived from Table 1 in 'others' sheet

Debt Equity

Rate

(equity) WACC

79508.00 108899.58 11.28% 8.11%

79508.00 93335.48 11.71% 8.05%

79508.00 176969.42 11.32% 9.01%

79508.00 119262.00 7.71% 6.07%

Beta (firm) = Beta (Asset) [ 1+(D/E) (1-T)]

To estimate the asset appraisals, mergers & acquisistion proposal,stock repurchases

Estimates based on individual divisions performance is better

Individual division's performance is better for estimates.

Based on the share of assets & using the computed betas

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Midland Case Calculations